Working out how much an employee will cost your business can actually be quite a difficult process. If you offer a $30,000 salary, it isn’t as simple as adding $30,000 to your expense forecasting. So how do you properly budget for employee benefits, considering the fact that you may legally have to add benefits for your employees, or you may just wish to make your position more appealing?
A simple rule to use is to add 20-50% to the worker’s salary to cover benefits. This isn’t perfect, but it is roughly the average and gives you a basis for your forecasting. If you don’t plan for these added extras, you might end up with some unexpected extra expenses. On average, 32% of the employer’s salary costs go toward benefits for employees. This works out to between $11 and $12 per hour. It is impossible to perfectly project, as each industry is different, and some firms spend more than others on keeping employees happy.
To create a more accurate budget, you need to consider the types of benefits you need to offer, and those you feel you need to offer to turn your workplace into an attractive proposition for potential employees.
What Are Employee Benefits?
These are any sort of benefit that is offered in addition to salary. Some are required by law whereas others are optional. The benefits system for a workplace incurs high costs to the employer, especially in big businesses, but without it, millions of Americans would never get a paid holiday, or wouldn’t have protection if they became ill.
The state in which you are based also plays a part in benefits, and what is legally required. Some states require you to offer more to your staff, to protect them and give people a better quality of life.
In the US, these are most commonly a 401(k) scheme. This means contributing to retirement savings for your employees. There are tax benefits to this, and it is something that most employees are looking for, especially in high-paid industries. It helps them with long-term security, and it can also encourage a staff member to stay working within the business.
Luckily, the IRS offers specific calculators to allow you to work out what 401(k) contributions will cost you.
The US health insurance system means that this is both the most expensive, and the most sought-after benefit that companies offer. In the past 10 years, health insurance premiums paid by employees have increased by more than half.
Companies that have 50 or more employees (full-time or FTE) must offer health insurance to their employees, but companies that are smaller than this can make their own decisions. This plays a huge part in the costs of your employee benefits, so you must think it through to work out exactly how to set a budget.
Other optional types of insurance include short-term and long-term disability insurance.
You must pay state and federal unemployment insurance, and all states other than Texas require workers’ compensation insurance.
As well as giving your employees a baseline salary, you might have to offer additional pay schemes. For example, paid bonuses for employees who have sales targets, or even overtime. The law now states that in the US, hours worked past 40 a week must be paid as overtime.
Your company might also have extra schemes such as “time and a half” schemes for unsociable hours. All of these supplemental costs need to be considered when offering benefits.
Depending on which state you are in, you might be obliged to offer paid leave. This does need to be considered, though it can effectively be “built-in” to the salary when you are budgeting for what you are going to pay your employees.
Consider whether an employee’s paid annual leave will incur extra costs. For example, you might have to get agency staff to fill in for them or give overtime to other employees.
Why Have a Generous Benefits Scheme?
A business is only as good as the people it employs. If you want to be successful then it is essential that you attract good people to your business and give them the chance to flourish, and hopefully stay with you for years.
A generous benefits scheme is both a way to attract good people to your business and a way to keep them. This is something that you need to be competitive about. If a rival company offers the same salary but a better set of benefits, including health insurance, you might find that you don’t get the best applicants for your positions. On top of that, you might even lose employees to companies that are offering more.
As well as it is attractive to employees, it is also a way to show them that you care about them. An employee within a company with no health insurance or disability insurance schemes might think the company doesn’t have their best interests at heart. Loyalty works both ways, of course.
How Can You Offer Benefits on a Budget?
Showing how to set a budget for employee benefits can be difficult, and certain basic legal protections such as insurance needs to be factored in, but there is also an element of choice on what you offer people. If you have set a budget and it isn’t particularly high, you can still potentially provide some great benefits.
Offering employee benefits can give you a chance to get creative. If you are on a budget, and you need to create an attractive package, then you can think about other things you might be able to offer your employees. Do you offer a service or a product? Is this something you can offer your employees for free? For instance, if you run a gym, it just makes perfect sense to give free membership to all of your employees. If you run a grocery store, you can offer a staff discount.
Other creative benefits could include a profit share, this means that employees are incentivized to work hard, too. A certain percentage of your company profits could be distributed to employees. This does mean a cost incurred, but only if the business is doing well in itself.
Certain types of businesses will find it easier to create benefits at a lower cost, but most can provide some internal benefits that are attractive to current and prospective employees.
It’s always best to budget more than you need. Some companies will add 50% to their overall staffing budget to cover employee benefits. Smaller companies might not have to offer quite so much. Some benefits only need to be offered legally when the company passes 50 full-time or FTE employees.
It may be that you can build a competitive set of benefits for around 20% of the budget assigned to salaries, but it is certainly harder. Consider what competing businesses are offering to ensure that you provide a package that won’t put people off when you are advertising a new role, or make your current staff want to jump ship.
Jim Hughes is a content marketer who has significant experience covering technology, finance, economics, and business topics for about 3 years. At the moment he works as a content manager at OpenCashAdvance.com.
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